Exam 12: Reporting and Interpreting Investments in Other Corporations

When the acquiring company purchases 100% of the investee's stock,the investee's assets and liabilities will be consolidated with those of the acquiring company at their book values.

McGinn Company purchased 10% of RJ Company's common stock during 2010 for $100,000.The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a $105,000 fair value at the end of 2011.Which of the following statements is incorrect if McGinn classifies the investment as available-for-sale security?

Madison Inc.acquires 100% of the voting stock of Allison Corp.for $10.0 million.Allison's total assets at fair value equaled $12.5 million and Allison had liabilities at fair value equal to $3.4 million.Madison will report goodwill of $0.9 million.

Miller Corp.purchased $1,000,000 of bonds at 96.The bonds pay interest at the rate of 10%.Miller intends to hold these bonds to maturity.Which of the following statements is correct?

An unrealized holding gain is reported on the income statement when the fair value of an available-for-sale security exceeds its cost.

On January 1,2010,Heitzman Company purchased the following shares as a long-term investment in available-for-sale securities: Maars 10,000 common (no par) 5\% \ 25 Nassif 2,000 preferred (par \ 10) 2\% \ 50 The market value of the stocks subsequently were as follows: Maars Corporation common stock \ 24.00 \ 27.50 Nassif Corporation preferred stock 51.00 50.50 Calculate the "Net unrealized gains/loss," on both December 31,2010 and December 31,2011.

Investments classified other than as held-to-maturity bond investments have to be reported on the balance sheet at fair value.

During 2010,the following items were reported on ShoeCo's statement of cash flows in millions of dollars.For each item,identify the type of activity it is (operating,investing,financing)and the effect it would have on cash flows statement (added or deducted). Acquisitions and investments in unconsolidated affiliates \ 64 Sales of property, plant, and equipment 38 Investee equity income, and gains on sale of equipment 207 Short-term investments, purchases 44 Short-term investments, sales 38

On January 1,2010,Shelley Company paid $650,000 cash for 100% of the outstanding common stock of SCD Company; SCD's stockholders equity on the date of acquisition was $500,000.The current market value of SCD's plant and equipment was $100,000 in excess of the equipment's book value.If the market value and book value are the same for SCD's remaining assets,what was the amount of goodwill purchased by Shelley Company?

Chang Corp.purchased $1,000,000 of bonds at par value on April 1,2010.The bonds pay interest at the rate of 10%.Chang intends to hold these bonds to maturity.Which of the following statements is false?